Retirement Plan Benefits Payable to a Trust | Ed Slott and Company, LLC

Retirement Plan Benefits Payable to a Trust

My organization was named as the Trustee of a decedent's retirement plan trust. The benefits are payable to the trust. The provisions of the trust are to divide the benefits into four separate shares, one for each of the decedent's four children. The four shares can be conduit trusts under the terms of the trust agreement. Administratively, do we create one Beneficiary IRA and distribute the RMD based on the oldest child's age pro rata to each child's conduit trust? Alternatively, is it possible to divide the retirement benefits into four Beneficiary IRAs and distribute the respective RMD based on that child's age?

  • The separate account rules do not apply to beneficiaries of a trust, but do apply to different trusts as beneficiaries of the same IRA. Pub 590 B, p 12 indicates that when a trust splits into other trusts, they all must meet the requirements to be qualified for look through, or the RMD rules for non individual beneficiaries will apply.  Therefore, in this case assuming that all trusts meet the requirements for look through treatment, the RMD paid to each trust can be based on the oldest beneficiary (including remainder but not mere successor beneficiaries) of each respective trust, but only if separate inherited IRAs for each are created no later than 12/31 of the year following the year of death.  If the trusts all remain under the same IRA account, then the oldest beneficiary or any of the trusts will determine the RMD divisor for all trusts.
  • If the trusts are not qualified for look through and the IRA owner passed prior to the RBD, the 5 year rule will apply.
  • Therefore, the number of IRA accounts created depends on the above situation. A conduit trust will avoid the need to consider older beneficiaries of the applicable trust, however there will be a can of worms if just some of these trusts were treated as conduit trusts and separate inherited IRAs were not funded by the deadline.
  • Was hoping that Bruce Steiner, estate attorney who posts here, would address this situation.

  • What does the trust say?  Does it provide for separate trusts, one for each child?  Or does it provide for a single trust for all four children?
  • If the IRA owner wanted separate trusts for each child, which it would have resulted in a more complicated beneficiary designation, the administration would have been simpler if the IRA owner had left the IRA (on the beneficiary designation form) to the children in separate trusts for their benefit.
  • Why did the IRA owner create conduit trusts?  Conduit trusts for children rarely if ever make any sense.  If a child lives to life expectancy, nothing will be left in the trust.  All of the assets (the IRA distributions) will be forced out to the child, throwing them into the child's estate for estate tax purposes, and exposing them to the child's creditors and spouses, and Medicaid.
  • See my article on this in the March 2004 issue of BNA Tax Management's Estates, Gifts & Trusts Journal: 

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